Roughly 40,000 people packed the CenturyLink Center, a basketball arena in downtown Omaha, to hear Mr. Buffett and his business partner, Charlie Munger, speak for hours about the economy, the stock market, and their widely celebrated approach to investing. This year, Mr. Buffett’s decision to abstain from voting on Coca-Cola 's equity pay plan for senior executives was the very first question. But there were plenty of light-hearted moments too.

We live-blogged this year’s Buffettpalooza from the first sip of Cherry Coke to the last bite of See’s candy. Here’s how it all went down:

Here we go! The Berkshire annual meeting has begun. Sort of. The first hour is set aside for the showing of a movie. Buffett and Munger will hit the stage once it’s over, but for now, Buffett has a seat right at the front of this arena facing the stage so he can see the movie. He’s sitting near his board, which includes his good friend Bill Gates. (I think I saw Gates, anyway. The press corps is in the rafters.)

Return visitors will recognize chunks of the movie, but this year it seems like there’s more fresh content than in recent years. We’ve seen the Geico camel, an animated video of Warren and Charlie playing hockey, and now they’re playing a clip of Warren with the cast from Entourage. We’ll get you up to speed on the day’s events while it plays.

It’s safe to say this gathering of shareholders isn’t like most annual meetings. While there’s a bit of official business to be done, it’ll happen several hours from now. In the meantime, Buffett and Munger will field dozens of questions from a panel of reporters, a panel of analysts and from shareholders on the floor of the arena.

My fingers can only move so fast, and sometimes a question is a dud or a repeat of something that’s been asked and answered by Buffett a dozen times before. So we won’t include every single question. But we’ll get most of them.

Likely among the first questions to be raised will be the topic of the compensation for executives at Coke, a company where Berkshire is the largest shareholder. An activist investor had been making noise about what he felt was an overly generous equity-compensation component. Buffett, who has always been vocal about the hazards of overpaying CEOs, elected to abstain from voting Berkshire’s shares in favor of the plan, but didn’t tell the public about his abstention until after it was over. (The plan passed, by the way.)

But many of the shareholders we talked to say they want to hear about why Buffett decided to abstain instead of voting no. They want to hear why he didn’t speak up publicly before the vote. And they want to hear how he reconciles the apparent soft touch he took on the matter with his discussion about executive pay from the 2009 annual meeting, when he said large shareholders in companies should “speak out on the most egregious cases” of CEO compensation abuses.

“The way to get big shots to change their behavior is to embarrass them,” he said at the time. ”It would act as a restraining factor that might set in corporate America… The restraining factor isn’t there right now.”

Now Buffett is talking about Berkshire’s first-quarter results. It was not an incredibly interesting quarter. The insurance underwriting results were poorer, but largely because of some unusual items in last year’s first quarter.

Now Buffett is discussing the dividend item on the proxy. He’s not being kind. He says it was “rather elegantly stated,” implying that it was not.

The short version of the story is, it lost very very badly. I only got a brief glimpse at the numbers (we’ll get a closer look later) but it only got around 2% of the vote, even when you remove Mr. Buffett’s massive stake.

Buffett starts by saying the calculation by the activist investor on the stock dilution from the Coke plan was “wildly off” and says that he’d talked to Coke’s CEO about his reservations “right here in Omaha” before the vote.

He says he remains a fan of Coke and its management. “We had no desire to go to war with Coca-Cola. … I don’t think going to war is a very good idea.”

In the end, his quiet approach beforehand, he says, means “the best result was achieved… we will see what happens in terms of compensation.”

Buffett briefly throws it to Munger, who says: “I think you handled the whole situation very well,” and then stops.

Munger, who has long served alongside Buffett as Berkshire’s vice chairman, is famously very brief and blunt, and many of the shareholders here know it. So the shortness of his first comment of the day elicits laughter.

Some technical issues mean I’ve fallen behind slightly. So, briefly, there was a question about Heinz and 3G that prompted Buffett to say that he would not be adopting the firm’s tactics, but would look for more opportunities to work with them.

And then he fielded a question about Obama from a questioner who was not a fan of the president. Buffett, famously, is. No news there.

Buffett then fielded a question about why the company moved the goalposts on how he measures the company’s success. We covered this issue here. Briefly, he says he was honest about how the company would do by his five-year metric in the 2012 letter, so he didn’t need to rehash it in 2013.

The Berkshire chairman and vice chairman are rehashing their thoughts on intrinsic value and when it’s appropriate to buy back shares. This is largely covered in Buffett’s past annual letters. Berkshire instituted a buyback for the first time just a few years ago.

Second question from the floor is from a shareholder from Los Angeles. He’s asking about buying whole companies versus buying stock, as Berkshire has moved more toward buying companies outright. He wonders how Buffett assures existing owners that his acquisition won’t be too disruptive.

“We can’t promise never to have a layoff…because who knows what the world holds,” Buffett says. ”We can promise not to sell their business, however” so long as there’s not unending losses or major labor problems.

“We are keeping certain businesses that you would not get a passing grade at business school for our reasons for keeping them,” he says.

But Berkshire keeps them because Buffett needs to keep his promises…so he can continue to buy companies.

“As long as we behave properly…really no one will have much luck in competing with us.”

Howard Buffett, Wearing his Deputy Sheriff’s uniform with a Macon County patrol car.

Next question, from a shareholder via Andrew Ross Sorkin: Howard Buffett is supposed to maintain Berkshire’s culture. How can we trust that will happen when he serves on the Coke board and apparently didn’t object to the pay plan?

Buffett so far is speaking generally in his response to this question. He says when he’s been on boards, he’s voted for comp plans and acquisitions that he thought were a mistake. And that it’s “almost unheard of” for board members who aren’t on a comp committee to oppose the comp plan.

Now he’s rehashing his general thoughts on why so-called independent directors aren’t so independent. It’s because they get paid too much.

Next question is from the analyst panel, from new participant Greggory Warren of Morningstar. He’s asked what Berkshire’s cost of capital is and whether future leaders of the firm will be able to exceed the cost of capital.

“We view our cost of capital as the returns we can get from our second-best idea…and we have to exceed that” with our best idea. But he also says he doesn’t really trust or believe calculations of cost of capital…and says people who talk about cost of capital often don’t know what they’re talking about.

“We think we can evaluate businesses” that are available to buy, and measure whether it’d be better to own them or the stocks already in their portfolio. That’s how he evaluates it.

Buffett said in his latest annual letter that most of the money that’s going to his wife upon his death will be invested in a low-cost S&P500 index fund. A shareholder, via Loomis, asks why the money isn’t going into Berkshire shares. Loomis said she got the question from numerous people.

On his wife’s capital allocation: “That is not a question of maximizing capital. That’s just a question of total 100% peace of mind….It is not designed for her to get even larger amounts of capital.”

He reminds shareholders that he’s giving his Berkshire shares to charity over several years after his death. (Much of it is to the Gates Foundation, in the largest charitable donation in history.)

“On the part I care about maximizing, I have instructed the three trustees to not sell a single share [of Berkshire] until it has to be sold. That’s good for 12 years.”

Analyst Jonathan Brandt asks about service challenges faced by the Burlington Northern railroad and whether rival Union Pacific is doing better. Buffett says that BNSF has handled more volume than in the past, but there’s no question BNSF has had a lot of service problems particularly in the northern route. Buffett said BNSF is spending more money than Union Pacific in terms of attempting to anticipate the kinds of problems that can occur when you can get a big increase in volume on that one route from the boom in the Bakken shale. BNSF has got a lot of trains running on that line that weren’t running five years ago.

Buffett and BNSF’s Matt Rose said cold weather caused a lot of problems too. Rose said he’s never seen winter weather like this with 83 inches of snow in Chicago and over 30 days it went to zero degrees in Minnesota… “things just don’t work.” Buffett added they are spending $5 billion on capital expenditures at BNSF this year, and no other railroad’s spending comes close.

A shareholder from Omaha asks: If the price of natural gas goes up sharply, how will that affect results at the Berkshire-owned energy company. Buffett says he’s not worried about that threat, and throws it to Greg Abel, the chairman and CEO of the unit.

Abel also cites the cold winter for recent results, but says he’s “proud” of how the resources were managed. He says renewable energy sources will meet more and more needs of customers, and cost-recovery mechanisms allow pass-throughs of rising costs to customers.

Buffett says he tips his hat to the way Abel has been running Berkshire’s energy company.

A shareholder asks whether Berkshire would increase disclosure about what top Berkshire employees are earning. He says they’ll do what the SEC requires and no more. The reason: publishing the info would create envy and make people want to earn more when they see what others make.

A shareholder up near us in the rafters, from West Des Moines, starts off by asking Buffett to please not move the meeting to Dallas.

Then a question on how much capital comes up to Berkshire from the operating subsidiaries. Buffett likes to keep $20 billion in cash on hand to make sure they’re ready for a rainy day, but says it “does not make that much difference” as it’s earning the same in either place.

“I know where the cash is,” Buffett says, adding he can move it when he needs to.

But that comes after Buffett gets in a zinger about his own mistakes, and says they come in part because he is “more inclined towards action” than Munger. And he asks Munger if that’s a fair assessment.

Member of the board of Berkshire Hathaway Ronald Olson (L) talks to Microsoft founder Bill Gates before the Berkshire Hathaway annual meeting.

A shareholder asks, via Loomis, what the company’s weaknesses are. Buffett says he probably could be more aggressive in taking cash from some units, and says he has “a clear weak point” in that “I am slow to make personnel changes.”

The lack of supervision over subsidiaries will also mean that, at times, “we’ll miss something.” But it also helps the managers accomplish a lot.

He predicts that someone will do something wrong in the future that will prompt outsiders to criticize the system and say he needs more oversight. “What they won’t be able to measure is how much we’ve been able to achieve with dozens and dozens of people because we gave them that leeway.”

Munger adds: “I think a lot of places work better where we create a system of earned trust.” Doing any differently, he says, does more harm than good.

“The box chocolate business is basically not growing,” he says, but See’s is a well-run company. “We can’t do much about increasing the size of the market.”

They’ve tried to have See’s expand outside of its home base in the western US, and failed.

“We’ve done very very very well with See’s” over time, he says. And he says it has made a major contribution beyond its earnings: “It opened my eyes to the power of brands. … you can say we made a whole lot of money in Coca-Cola” because of what Buffett learned about the power of brands from See’s. He says he’s not sure he would have made that Coke investment without that lesson.

“It’s main contributor to Berkshire was ignorance removal,” says Munger.

From the analyst panel, Jay Gelb of Barclays asks about how much Berkshire could spend on a deal, and asks if some of Berkshire’s largest and longest stock positions could be sold to fund an acquisition.

Buffett says, in part, that they can handle most deals without doing so, since they have over $40 billion and are willing to go down to $20 billion.

But “if I needed to, I would…That could happen. Could happen this year, could happen 10 years from now.”

He says he has other stocks he’d sell before his largest holdings. “If we were to raise $5 to $10 billion,” he said wouldn’t sell those.

Combs and Weschler, Berkshire’s two investment managers, are now in line for praise. Buffett says they are “terrific additions to Berkshire” for reasons beyond their investment skills. They manage about $7 billion each, and will continue to shoulder more “as the years go by.”

Munger and Buffett field a question about whether the conglomerate model will continue working at Berkshire once they’re gone. They draw a distinction between types of conglomerates, and say ones that failed often just kept issuing stock and weren’t operated the same way that Berkshire is.

“We are a lot more like the Mellon brothers than Gulf + Western,” says Munger.

Someone asks how the oil sands and the Keystone pipeline will affect Berkshire businesses. Buffett says Berkshire’s Marmon unit benefits, and a newly acquired unit that helps move oil through pipelines will do more business.

But of course BNSF is a competitor to oil pipelines, and Buffett says the railroad moves 700,000 barrels a day. He says that rail is more flexible for choosing a destination for oil and says he doesn’t see a major threat.

“I think the oil sands are an important asset for mankind over the centuries to come, but I don’t think it’ll dramatically change anything at Berkshire,” Buffett says.

Just before a break for lunch, Buffett updates shareholders on a six-year old bet he made with some hedge-fund managers about whether they could pick a group of hedge funds that would outperform the S&P over time.

The first year, the fund-of-funds they assembled did well in a down year. But over the entire life of the bet, the cumulative return of the S&P index fund has been 43.8%, while the hedge funds returned 12.5%.

Buffett briefly displayed a tally that broke down the vote by holders of the Class A shares and the much smaller Class Bs, which showed little variability between the two classes of stock.

And even removing Buffett’s own sizable stake from the calculation failed to lift the number of supporters for a dividend beyond 3%.

The takeaway is that the vocal group of shareholders that want to get a dividend are wildly, wildly outnumbered. This vote handed Buffett another bit of ammunition for the next time he needs to make his case that Berkshire shouldn’t pay one.

More questions in just a minute. Right now, Buffett is talking about attendance, saying there’s “substantially more” people than in any other year. Berkshire told us ahead of time 38,000 people were likely to come.

He uses the topic as a chance to discuss the need for Berkshire managers to look to the future and figure out what challenges could undermine their business. Which means we’ve covered three of these six topics we identified ahead of time. We’re batting .500 and we’ve got a couple hours to go.

Mr. Gelb of Barclays asks about Heinz’s earnings power. Buffett says Heinz was “actually a reasonably run food company with about 15% pre-tax margins” before Berkshire and 3G acquired it.

That’s “not an unusual margin in the food business,” he said. But it’ll do better than that under the new management. “The margins of Heinz will be significantly improved from those historical figures,” he said, but declined to give a number.

Buffett says he spent a lot of Berkshire’s spare cash “too early” during the financial crisis.

Buffett jumped in and arranged one-off deals with major US companies during the early months of the crisis, including Goldman Sachs Group Inc. and General Electric. Berkshire also made smaller investments in companies including Harley-Davidson and Tiffany.

But Buffett said, knowing what he knows now, “We didn’t do remotely as well if we had kept all our powder dry” until the very bottom. “The timing could have been improved dramatically.”

The only problem, he says, is that he’s never figured out how to determine when the market is at the bottom.

That’s an interesting perspective, especially since Buffett published a widely read column on why he was buying stocks in October 2008.

Andrew Ross Sorkin shares a question from an investor wondering about Geico’s views on telematics and self-driving cars. Both are hot topics in the auto-insurance industry.

Two years ago, Buffett said he didn’t see what the big deal was with usage-based insurance, where insurers use a small device to evaluate how policyholders drive and adjust the price of coverage accordingly. By not publicly saying that it was looking at the technology, Geico stands in stark contrast to all the other major US auto insurers.

Buffett says he still feels Geico can do just fine without it, but sounds more open to the idea of giving the technology a look.

“We think we have a pretty good system but we’ll continue to look at many variables,” he said. “I feel very very very good about Geico, Geico’s management and it’s ability to evaluate risk….In my view, there’s nobody better.

But Buffett and Munger both say self-driving cars represent “a real threat to the auto insurance industry,” presumably because accidents, and therefor premiums, will fall.

“It will be very good for society and it will be very bad for auto insurers,” Buffett says.

But Munger says that adoption of the technology may take longer than people think.

Morningstar’s Warren asks why Berkshire has deployed very little capital outside of the U.S. and whether the U.S. is truly more attractive than other markets? Buffett said they’ve not turned down the chance to make a big acquisition outside the U.S. because of any feeling that “we’d much rather be doing something in the U.S.” He mentioned the recent AltaLink deal with Berkshire Hathaway Energy as an example; AltaLink is based in Alberta, Canada. “We’ve not had as much luck getting on the radar screen of owners around the world as we’ve had in the United States,” he said. Apart from Israeli metal-cutting equipment maker Iscar, which Berkshire owns, founder or family-owned companies of size that Buffett typically likes to buy from Europe or other continents haven’t come calling, he said. “I’ve been a little disappointed we haven’t have better luck outside the country but we’ll keep working at it.”

The next question from a shareholder, via Loomis, is over the comparison Buffett makes of Berkshire’s book value versus the S&P. The shareholder says the comparison makes no sense.

Munger fields this one, and is as loquacious as he’s been all day. He says the questioner is correct. The comparison makes it difficult for Berkshire to look good, he says. But Buffett likes a challenge.

A question about hotel prices. The questioner says Buffett’s efforts to steer shareholders to Airbnb seems to go against the tenets of capitalism.

Buffett points out that Berkshire wants people to come, and “since we want to increase the demand, the proper thing to do is increase the supply.”

He says most hotels in Omaha weren’t overcharging. But “there were few that were really pushing things…What really bothered me was the three day minimums” that some hotels have imposed.

What he doesn’t say is that Berkshire companies like See’s, Geico, Borsheims, Nebraska Furniture Mart and even NetJets make money from shareholders who come to Omaha. If more shareholders can afford to come, Berkshire makes more money.

In other words, the capitalist enterprise known as Berkshire wants to encourage capitalists to come and spent their capital. And they’re doing it by promoting another capitalist enterprise.

A shareholder from Los Angeles asks about whether Buffett disagrees with his mentor, Ben Graham, about how to calculate intrinsic value. Buffett brings up Philip Fisher in his answer, which ultimately becomes a long metaphor revolving around the phrase “a bird in the hand is with two in the bush.”

Several factors matter in that comparison, including how close the bush is…and what interest rates are.

The questioner also asked what companies he sees as Berkshire’s competition. Buffett says there isn’t one.

“I don’t seen any competitor to Berkshire,” he says. “There are always going to be people competing with us to buy businesses… but I don’t see anybody who has a model…that will essentially go after what we’re trying to achieve.”

Buffett and Munger conclude that others don’t try to do what they do because it takes too long.

“The difficulty of being slow is that you’re dead before it’s finished,” says Munger.

If every person in America were to be handed $1 million overnight, Berkshire would be worse off, Buffett says. EPS would go up, but the value of the shares would go down in real terms, he says.

Munger doesn’t seem to be as enamored by the Fed’s actions since the financial crisis as Buffett said he was. He says there’s some limit that will be reached when “politicians” print and spend endless piles of money. “I will never forget Weimar Germany,” he says.

How would a major, catastrophic derailment impact Burlington Northern? I’d say that’s a good question, since we asked it yesterday. (4 for 6!)

The issue, as the Wall Street Journal reported in January that the insurance industry hasn’t historically had the capacity to cover the cost of a potential catastrophic train derailment in a large U.S. city.

Buffett says the 30-year fixed mortgage “has done a lot for home ownership,” and the government guarantee of it helps keep the cost down. So the government needs to “stay in the picture,” he said.

There may be a role for private industry to provide more mortgage insurance, standing in front of the government, Buffett says. But he also says Berkshire would not likely be among the participants in that space, since he predicts that others would be more “optimistic” in setting their prices.

Well-known investor Whitney Tilson has a question about 3G, the firm Berkshire partnered with on the Heinz deal. Tilson says he’s reading a book about them. Buffett interrupts to let people know the book is for sale in the convention area of the arena.

Buffett says Berkshire is fortunate to be associated with the company. Munger says they’re excellent about cutting costs, and that removing costs is “a service to humanity.”

Buffett is asked by the shareholder about what Berkshire will look like in 20 years. He says that he doesn’t fully know the answer, but says there will come a time when the company has more capital than it knows what to do with.

“What I do know is that we will have more cash than we can intelligently invest in the future,” he says. “It’s not on a distant horizon. The number is getting up to where we can’t intelligently deploy the amounts coming in.”

Buffett says the company may buy back shares, but I suspect some Buffettologists will interpret that statement as an acknowledgement that perhaps a dividend isn’t out of the question eventually. Despite that vote earlier.

After all, Buffett has said that he hasn’t paid a dividend because he believes he can put Berkshire’s funds to good use in investments and deals.

“Whatever is done will be done in the interest of the shareholder,” Buffett says. “Every decision is based on that principle.”

And…. that’s it for the Q&A. The official shareholder meeting will start in 15 minutes or so. Given that the results of the dividend vote were already disclosed, it’s unlikely that there will be any further news, but we’ll keep the live blog running just in case there’s a newsworthy development.

Next on the proxy is a shareholder proposal to “establish reasonable, quantitative goals for reduction of greenhouse gas and other air emissions at its energy-generating holdings.”

A similar measure got 57,569 votes, or about 8.2% of the vote last year. The Berkshire representative who just announced the results didn’t give the number of abstentions, so we can’t offer a percentage for this year yet, but the number of yes votes fell to 49,553.

And that’s it! The meeting is over, but we’ve got one more tidbit for you. Wall Street Journal videographer Marshall Crook spotted suspended Yankees slugger Alex Rodriguez earlier this afternoon. A-Rod declined an interview request but said he was having a nice day and was here to “learn from the best.”

Berkshire insured A-Rod’s contract with the Texas Rangers, and later, Buffett advised him on one of his contract negotiations with the Yankees.

There are plenty of reporters left in the press box as we try to digest what it all means, but few shareholder are lingering in the arena. The lights are coming up. They’re stacking the chairs. The Coke supply has run down. The See’s is running short.

Comments (5 of 18)

Many unsavory remarks I have read here.
As a non-eyewittness with Mr. Buffett in a meeting, I suggest to others to bone-up on the subject matter for an intelliigent conclusionery comment.

Business leads from the brain and with Mr. Buffett -- he leads with it all and only for the betterment of others.
We are blessed.

11:42 am July 27, 2014

Cheryl A Biddle wrote:

Only one share, Charlie?
Trading at ? right now, Charlie?

9:09 am May 8, 2014

soccerref wrote:

Very glad that WB stepped, no stomped on the political right wing question ask early in the Q & A. It had no business being ask and he directed the discussion back to BH. Don't like his politics, find CEO's with your political persuasion and see if they are as honest and forthright as WB or CM. Nah, knew you couldn't find any. They value honesty and integrity far above the desire to make every last penny, no he said nickel. Wonderful weekend except for the crowds.

7:54 pm May 5, 2014

Shane wrote:

Read once that Warren will be giving most of his wealth to planned parenthood? Is that true?

11:16 pm May 3, 2014

FirstTimeAttender wrote:

I attended the annual meeting for the first time with a friend of mine is a shareholder. Even though our political stances are different, I agree with Buffett's investment strategy. His concern with the self run vehicles reducing the sustainability of auto insurance is a concern for long term vision